Are Broadcom Shares Oversold Following 20% Drawdown?

Broadcom shares (NASDAQ:AVGO) have fallen back 20% from recent highs near $495, prompting JPMorgan to reiterate its Overweight rating and label the AI chip giant a compelling buy at current levels around $390.

The sharp selloff has erased billions in market value despite Broadcom reporting robust quarterly results that included AI semiconductor revenue growth exceeding 140% year-over-year and management reaffirming its path toward more than $100 billion in AI chip revenue through fiscal 2027.

Is Broadcom’s stock oversold?

JPMorgan analysts pushed back forcefully against what they characterised as “recent noise from sell-siders, the Asia supply chain, and news outlets” suggesting delays or cancellations in Broadcom’s next-generation programs with hyperscale customers. The firm’s proprietary research indicates that Broadcom and Google have not delayed or cancelled their next-generation Google Tensor Processing Unit v9 2nm program, contrary to market chatter that contributed to selling pressure.

The broker maintained its $580 price target on Broadcom, implying almost 50% upside from current levels, and urged clients to be “aggressive buyers at current levels.”

The disconnect between Broadcom’s fundamental performance and its share price movement has become a focal point for market observers trying to parse whether the correction represents a buying opportunity or a signal of broader trouble in the AI trade. The company’s most recent earnings report showed revenue and earnings per share both beating consensus estimates, with AI-related semiconductor sales posting triple-digit growth rates. Management highlighted record design wins, a robust backlog of custom AI chip orders from major cloud providers, and expanding margins in its AI infrastructure business.

Yet markets reacted negatively to guidance that, while strong in absolute terms, failed to exceed already elevated expectations by a wide enough margin. The episode has been widely interpreted as evidence that the AI sector has entered a new phase where even excellent results can trigger sharp selloffs if they fall short of stretched positioning and sentiment. Multiple sell-side notes in recent weeks have described the dynamic as a shift from “AI hype” to “AI earnings scrutiny,” where the market now demands sustained acceleration rather than merely strong growth.

Technically Not

Technical indicators have flashed oversold signals across many short time frames, with the relative strength index dropping into the low-to-mid 30s and even touching the low 20s on some shorter-duration charts. Zooming out to the preferred daily chart for a longer term picture has AVGO at 37 on the RSI, not yet into oversold territory. The reversal has happened quickly, and momentum had been building strongly leading into the earnings that started the move.

JPMorgan’s defense of Broadcom centers on what the firm describes as the market’s continued underestimation of the company’s “significant dominance” in advanced packaging design, cadence of new chip designs, intellectual property portfolio, and track record of execution. The bank emphasized that Broadcom’s position in custom AI accelerators for hyperscalers such as Google, Meta, and others provides multi-year revenue visibility and pricing power that few semiconductor peers can match. The firm’s analysis suggests that Broadcom’s expertise in co-designing complex AI chips with customers, combined with its leadership in high-speed networking and advanced packaging technologies, creates durable competitive advantages that justify premium valuations.

Other major Wall Street brokers have largely echoed JPMorgan’s constructive stance, with the vast majority of analysts maintaining Buy or Overweight ratings and price targets well above current trading levels. Morgan Stanley and UBS both raised their price targets in recent months to the mid-$400s, citing Broadcom’s expanding role in AI infrastructure buildouts. The Street consensus reflects expectations that AI backlog and custom chip orders will drive continued earnings growth over the next several years, even as some analysts have turned more cautious on near-term momentum.

What Next?

The debate over whether Broadcom is oversold ultimately hinges on whether one believes the recent selloff reflects a fundamental reassessment of the company’s AI opportunity or simply a technical and sentiment-driven correction after an extended rally.

Bulls point to accelerating AI chip revenue, record backlog, expanding margins, and dominant positions in custom silicon and networking as evidence that the business trajectory remains firmly positive. They argue that the stock’s 20% decline from recent highs has created an attractive entry point for investors willing to look past near-term noise and focus on multi-year earnings power.

Bears counter that even after the correction, Broadcom trades at valuations that assume flawless execution and continued AI spending growth, leaving little room for disappointment. They note that guidance, while solid, was merely in line with expectations rather than ahead, and that software revenue growth has been softer than some investors hoped. The more cautious camp also highlights that the market’s tolerance for “good but not great” results has clearly diminished, raising the bar for what constitutes a positive surprise and increasing the risk of further multiple compression if AI momentum shows any signs of fading.